When everyone has a home

Housing advice for Northern Ireland

Repaying your debt

Lots of people get back on their feet after falling into arrears and manage to keep their home. Falling behind on your mortgage doesn't mean you'll have to hand back your keys or that you'll have to pay everything you owe in a lump sum. Your lender should offer you a range of options to help you get back on track.

Ways to repay the debt

Your lender should offer you a range of options to help you get back on track. Depending on your circumstances and the type of the mortgage product you had signed up to, you could consider a number of alternatives such as:

  • conversion to interest-only, if you are on a capital repayment mortgage,
  • adding your arrears onto the outstanding balance of the loan,
  • making additional repayments over a period of time,
  • extending the amount of time left on the mortgage agreement,
  • delaying payments of arrears if the income drop is temporary,
  • claiming on your mortgage payment protection or insurance if you have this.

Capitalising your arrears

Capitalising your arrears basically means asking your lender to add your debt to the total sum you had originally borrowed.

This means you'll spread the arrears repayments over the remaining period of your mortgage, making the sum more manageable. However, your monthly payments will normally increase because of this and interest would be charged on the remortgaged amount making the deal more expensive in the long run.

Your lender is unlikely to agree to this option if you’ve failed to keep up with previous revised payments agreement in the past or if your home is in negative equity.

Making additional payments

If you can manage to pay small amounts of additional payments in instalments, the lender may take a view that you’re actively dealing with your debts and will be more likely to give you an additional period to repay the arrears.

Even if you can pay a very small amount towards your arrears, this will help stop interest and other costs building up, but you need to make sure that the payments are in addition to, and not a substitute of, your normal monthly payments. This option may be suitable for people whose financial situation had improved since falling into arrears and are now able to maintain increased payments amounts.

Extending the mortgage period

Most mortgages are paid back over 25 years. If you have a repayment mortgage and you’ve been paying it back for a while, you could ask your lender to extend the remaining term to 25 years again. This will reduce your monthly payments, but you will be making them for longer and, in the end, this will cost you more overall.

Extending the mortgage period is usually considered with repayment mortgages, but is less likely to be an effective option with interest-only mortgages.

Delaying payments of arrears

If your drop in income is temporary and you can keep up with your current monthly repayments, you may want to ask your lender to freeze or delay payments of your arrears for a certain period of time.

If you are certain that your income drop is only temporary and that it will return to the same level as before, this may be a valid option to consider. However, if your income is likely to stay lower than before, the lender may not agree to delaying your arrears payments.

Changing the way you repay your mortgage

If your financial difficulties are short-term and you’re on a repayment mortgage, you should consider asking your lender to move you to interest-only payments for a while. Under this arrangement, you would only be paying the interest which would bring down your monthly payments, but keep in mind you will need to catch up with the full mortgage amount at a later date.

Claiming on mortgage payment protection insurance

Some people take out insurance which will keep up your repayments if you are unable to work because of an illness, an accident or redundancy. If you have taken out insurance, you should check whether you can claim on it to cover your arrears.

Insurance is usually included in your monthly payments. Check your mortgage payment protection insurance policy carefully. You may:

  • have to wait a few months before the policy will start paying your monthly payments
  • only be covered for a year or two.

Your mortgage payment protection insurance may not cover you if you have a pre-existing illness. This is a complicated area and you should get specialist advice if you have concerns about your mortgage payment protection insurance. Mortgage payment protection insurance is different from a mortgage indemnity guarantee or life insurance.

There are a number of options available and finding the right one can be somewhat confusing. Discuss your options with your lender and if you’re not sure about what to do, speak to an independent adviser.